Understanding Market Conditions: Just What is a 'Buyer's Market' or 'Seller's Market' Anyway?
The market is constantly changing, which is why real estate is often referred to as being on a cycle. The amount of available homes tends to shift from a seller's market to a buyer's market and back again, with one often affecting the other. There are many ways that the current economy of a geographic area can alter the property market, but what it boils down to in the simplest terms is basic 'supply and demand.'
The Simple Explanation of a Buyer's Market
When there are more people looking to sell their homes than there are people trying to buy property, it becomes a buyer's market and puts all the power into the hands of the few people trying to purchase real estate in the city. It becomes easier for them to find great houses or condos at a lower price and allows them to control the negotiation process. Buyer's markets often stem from poor economic situations in an area, when jobs are few or interest rates are high, the times when families aren't exactly rushing out to look for a new home. Buyer's markets also tend to come hot on the heels of seller's markets, when developers rush to capitalize on the lack of property by building an overabundance of housing complexes and condominium buildings. These construction boom periods result in too many empty homes that need to be sold quickly.
When Does it Become a Seller's Market?
Alternatively, a seller's market happens when the demand for property far outweighs the supply. This can happen for many reasons. Cities that are on the upswing and have just begun to gain popularity, for reasons as varying as job prospects or living conditions, haven't yet undergone construction boom periods and have far less homes available to the scores of people moving in. Seller's markets can also arise in cities with a great economy, as more families having more money to spend will only lead to increased bidding on homes that are on the market. Fluctuating interest rates are also a huge element in determining the current market conditions. When banks are offering low interest rates on mortgages it can be the deciding factor for many people on whether or not they look for a new home.
Now that the basic differences between a buyer's market and a seller's market are put out there, it's important to realize that there is no consistency between provinces, cities or even neighbourhoods. The best thing to do is to always plan ahead before relocating to a new area to make sure the market conditions aren't disproportionate. Many people make the mistake of selling in a balanced market only to move to a neighbourhood with few available homes where the sellers have all the power. A situation like that can see somebody spending more money than they made on the sale of their home on one that may not be any more valuable.